Those hedge funds that made a packet out of China’s downfall may not want to gloat over their gains too loudly as Chinese regulators are sharpening their blades.
China has given up trying to prop up its stock market through large scale share purchases, instead it is looking for someone to blame. Beijing has now vowed to intensify its effort punish anyone suspected of “destabilising the market”.
So far the victims of this purge have included journalists, stock market officials, and eight managers from Citic Securities. Four other large Chinese brokerages are also being grilled by regulators. Regulators are just getting warmed up.
Chinese hedge funds have already had more than a shot across the bow before the most recent crisis. In July – when the Shanghai Composite Index lost more than a third of it value in three week – the China Securities Regulatory Commission (CSRC) said it would investigate “malicious”” short-selling practices in Shanghai and Shenzhen.
And it did. At the start of this month, they froze a trading account linked to Citadel Securities which owns hedge fund Citadel. The issue is yet to be resolved
The CSRC previously blamed the market turbulence on coordinated stock dumping, selling-off of heavily weighted stocks, and automated, algorithm-driven trading.
Now the language is even stronger. The Financial Times has reported that some officials are arguing strongly for a crackdown on “foreign forces” that have intentionally unsettled the market. One unnamed Hong Kong-based hedge fund manager was quoted saying:
“Global investors are listening to the language of retribution and watching this witch-hunt going on, and they are trying to understand what this means for them.”
Photo: Petr Zavadil